A dry bed is a simple comfort that most people can take for granted. But nine-year-old Lorenzo Gilbert and his seven siblings never knew this comfort until Friday night when they received a new hou
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IMF sees potential spillovers from PetroCaribe
The International Monetary Fund (IMF) in its 2014 Spillover Report released August 18 said it sees potential spillovers including “macroeconomic difficulties” into the economies PetroCaribe now helps. “Venezuela has provided financial support to countries in Latin America and the Caribbean through energy co-operation agreements, under which Venezuela sells oil at market prices, but gives generous financing conditions to beneficiary countries, including long-term loans at low interest rates, and sometimes the possibility to repay in kind,” the IMF said. “The volume of oil sold to the region under various agreements (San Jose, Caracas, Integral Cooperation, and PetroCaribe) has stabilised at around 250,000 barrels per day (bpd) after 2009, with values rising to about US$10 billion in 2012.”
These arrangements, the IMF said, represent a relatively small share of the Venezuelan oil sector, but nonetheless the authorities could decide to reduce this support “if the country’s external liquidity constraints become binding.” The financing element of these agreements accounts for only about five per cent of Venezuela's export revenue (US$4.9 billion) and its accumulated claims on beneficiary countries stood at only about 2.7 per cent of Venezuelan gross domestic product (GDP) (US$10 billion) as at end-2012.
“Nonetheless, given external liquidity constraints, including a continued reduction in international reserves, the authorities could choose to reduce or eliminate these schemes or switch to less generous financing conditions. The authorities publicly avow to continue these agreements, but eight countries have already reported some reductions in PetroCaribe financing in 2013,” the IMF said.
“Some countries are highly dependent on financing from these arrangements. Beneficiary countries receive financing from Venezuela equivalent to 1.5 per cent of GDP per year on average, but in some cases, as much as three to seven per cent. Consequently, some Caribbean countries have debt to Venezuela of about ten per cent of GDP (15 per cent and 19 per cent of GDP for Haiti and Nicaragua, respectively). In the event of an interruption of the agreements or an abrupt change in their conditions, a number of countries could face significant balance of payments gaps and macroeconomic difficulties,” the IMF said.
“These countries would face a difficult choice between adjusting and finding alternative sources of external financing, including from the IMF. Countries with a large balance of payments gap and no access to international markets would likely seek concessional financing,” the IMF said. Given these vulnerabilities, some beneficiary countries have been making contingency plans. For example, Guyana has been saving a substantial part of the PetroCaribe financing to be used as a “sinking fund” and actively reducing its debt with PetroCaribe.
Jamaica plans to build larger international reserves over the medium term as a partial buffer for its balance of payments risks. Belize plans to use PetroCaribe financing to further strengthen its external buffers. In Haiti, the authorities are strengthening fiscal and monetary policies to preserve buffers in the form of government deposits with the banking system and international reserves.